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Friday, 13 February 2015

Solar Sukuk Marks Australia’s Debut Choosing Labuan Haven

Australia is set to become the newest entrant to the Islamic debt market this year as a solar-power joint venture seeks to sell a debut sukuk in Malaysia’s offshore tax haven of Labuan.

SGI-Mitabu, run by The Solar Guys International and Mitabu Australia Pty, has revived a plan to offer A$150 million ($117 million) of the securities in the third quarter to finance the building of a plant in Indonesia, M. Rusydi, Mitabu’s director, said by phone from Brisbane on Feb. 10. The company is coming to Malaysia because Australia still hasn’t approved laws allowing for the sale of sukuk since first proposing a plan in 2010.

The offering may serve as a model for Australian companies to tap the $1.7 trillion Islamic banking industry, according to Kuala Lumpur-based consultancy Amanah Capital Group Ltd. Malaysia, the world’s biggest Shariah-compliant debt market, has attracted sukuk issuers from Japan, which also lacks legislation that avoids double taxation on capital gains and income streams. Labuan, an island off the coast of Borneo, was established as a financial hub in 1990.

“Such financial transactions benefit the Australian economy by opening up more sources of funding,” Suhaimi Zainul-Abidin, treasurer of the Gulf Asia Shari’ah Compliant Investments Association, said in a Feb. 10 e-mail from Singapore. “But, it may be premature to expect a sudden spurt in the number of Australian companies issuing sukuk.”

Tax Incentives

SGI-Mitabu’s debt sale was first announced in December 2012 with a target issuance date of June 2013. The offering was delayed while the Indonesian government approved the location of the new plant as an economic zone, said Rusydi.

Labuan, which is also an offshore oil and gas hub off the coast of eastern Sabah state, doesn’t charge stamp duties on revenue streams from sukuk’s underlying assets or on capital gains. The island offers an income tax rate of 3 percent and has attracted 10,352 companies since its inception, according to the Labuan International Business and Financial Centre’s website.

About 2.2 percent of Australia’s 23 million population are Muslim, according to U.S. government data. A bill to give equal tax treatment to Islamic bonds was presented to parliament in 2010 and the National Taxation Board submitted a study in July 2011. There’s been no major development since.

Shariah-compliant finance presents an avenue for Australia to open its capital market, boost competition and encourage social inclusion, Bernie Ripoll, a former parliamentary secretary to the Treasurer, said in an April 2013 speech.

Lacking Prominence

The lack of progress could be partly due to the changes in the Australian government, said Reynah Tang, a tax partner with law firm Johnson Winter & Slattery in Melbourne.

“Back at the time the original proposals were happening, the thinking was that Islamic finance would become a more regular feature of our capital markets,” Tang said by phone on Feb. 11. “It hasn’t been very prominent in more recent years.”

While Australia is stalling, other nations are seeing opportunities in Islamic finance. The U.K. became the first non-Muslim country to sell sukuk in 2014, followed by debuts by Luxembourg, Hong Kong and South Africa. Investors bid for 10 times the 200 million pounds ($305 million) offered by the U.K.

Global sales of Shariah-compliant notes, which pay returns on assets to comply with Islam’s ban on interest, climbed 7 percent to $46.3 billion in 2014 from a year earlier and reached a record $46.8 billion in 2012, data compiled by Bloomberg show. Issuance totals $1.7 billion so far this year.

Malaysia’s Attraction

Malaysia has attracted sukuk sales from Japanese companies such as Bank of Tokyo-Mitsubishi UFJ (Malaysia) Bhd. and Nomura Holdings Inc., while Toyota Motor Corp. issued Islamic debt via its local unit. Export-Import Bank of Korea set up a combined Islamic and conventional bond program in the Southeast Asian nation in 2008 but never sold a sukuk portion.

National Australia Bank Ltd., the nation’s fourth-biggest lender, has been exploring the possibility of selling Shariah-compliant notes since at least 2011. Citilink Finance Australia Ltd. was also planning a sale that year, although neither has ever materialized.

“SGI-Mitabu’s sukuk issuance is a very good catalyst for Australia’s Islamic financial market,” Abas A. Jalil, Kuala Lumpur-based chief executive officer at Amanah Capital, said in an e-mail interview Wednesday. “Once the Australian market becomes more familiar with Islamic finance, the process of amending the laws relating to sukuk taxation will be expedited.

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